After Marchionne's Passing, Is FCA Riper For Carving Up?

The Jeep brand alone is worth almost as FCA's total street value, giving rise to speculation that the Agnelli family, without the late Sergio Marchionne as CEO or an advising board member, could move to sell the company in pieces.jeep.com

Following the sudden death of FCA CEO Sergio Marchionne, the share price of the automaker has fallen in part because of the void left on the company by the passing of the charismatic executive. Questions should start to be raised about whether the company should be broken up to maximize value to shareholders.

Marchionne was the architect of Fiat's takeover of the Chrysler Group–Chrysler, Dodge, Jeep and Ram–when the U.S. government had the company in receivership in 2009. The Obama White House auto team was considering letting the group dissolve, viewing it as too big a basket case to save. But Marchionne saw his opportunity to bolster the lagging Fiat business by getting his hands on the Jeep and Ram businesses. The Ram pickup business is enormously profitable, as is Jeep, and the latter, he and everyone else in the industry knew, was woefully under leveraged globally.

Marchionne also saw the opportunity to leverage the company's new presence in the U.S. to distribute Fiat, Maserati and Alfa Romeo brands in the U.S.

Marchionne's plan is well underway, and he zeroed out debt at the company for over ten years. Jeep has expanded into new markets around the world, and its profits have climbed. Still, the late-CEO spoke up loudly and often about the need for a significant merger or alliance partner to share costs of electric vehicle/autonomous driving technology. He openly and publicly courted GM CEO Mary Barra for an FCA-GM tie-up.

Last summer, Morgan Stanley analyst Adam Jonas pointed out in a research report that Jeep was worth roughly 120% of FCA's street value. FCA stock at that time was about $12.00. Shares closed Friday at $16.91. That's about $1.50 value, then for all of Fiat, Maserati, Ram, Chrysler, Dodge, Alfa Romeo, Lancia and Mopar.

Marchionne was committed to taking the company forward as a whole. And he was such a force of personality and carried such influence with the FCA board and the Agnelli family, which owns 29.19% of the shares and controls 44.31% of the voting shares, that he could will the company to stay with his plan. Without Marchionne's driving commitment to keep the company together as a whole, even if it meant aligning or merging with another auto company, it is an open question as to whether the FCA board and Agnellis won't simply sell pieces to the highest bidder.

Marchionne had originally planned to step down from his CEO position in 2019 but because of his deteriorating health that happened a couple days prior to his death, The FCA board named long-time Jeep executive Mike Manley as CEO, unexpectedly accelerating the transition. Even if Manley, a very capable executive who has been guiding the expansion of Jeep, was to be the CEO after Marchionne retired, the late CEO would likely have remained in the picture as a board member still exerting influence.

Last January, Marchionne specifically said the company had no intention of selling the company in pieces or at all to Chinese concerns. “We’re not going to break up anything,” Marchionne said at his news conference at the Detroit auto show. “We have no intention of breaking it up and giving anything to the Chinese.” His comments came after China's Great Wall Motor Company and Guangzhou Automobile Group Co Ltd. had been seen at company headquarters in Auburn Hills, Michigan "kicking the tires" on the company. Marchionne acknowledged that Chrysler had been consulting with Guangzhou about its plans to enter the U.S. market.

There would be no end of bidders for Jeep, including likely Ford, GM, Nissan, PSA, Tata, Mahindra, Hyundai and any number of Chinese automakers. Volkswagen Group has expressed interest in the past in Alfa Romeo and Maserati. Chrysler and Dodge brands would be more problematical as neither would be profitable but for the aging and fully amortized vehicle platforms upon which their products are manufactured. Nissan has reportedly long been interested in the Ram pickup business of FCA's and at one time, before Chrysler's bankruptcy, had an agreement in place by which Chrysler group was going to manufacture Nissan pickups based on the Ram platform.

Besides Marchionne's passing, FCA shares are also under pressure because of the impact on sales and profits of FCA by Donald Trump's tariffs on steel and aluminum, and his proposed tariffs on imported vehicle content of all kinds.

The company updated Wall Street and the media on its five-year plan in June at a meeting in Milan. New CEO Manley played a critical role in developing that plan with Marchionne. But without the larger than life "Sergio" around to press its implementation, Manley and the board are free to chart a new path.